Is Fixed Fee on CPFF Contract Really Fixed
Q. We subscribe to your newsletter and I have a question I am hoping you can help me with. We have primarily CPFF type contracts. I understand that the fee dollars are supposed to be fixed, regardless of what your cost ends up being, and that billing throughout the period of the contract is based on percentage of cost. What I am confused about is what prevents a contractor from deciding to run all of their contracts at below their original estimated cost in an attempt to essentially gain a higher percentage fee?
A. Unless a contract stipulates that the fixed fee is based on a range of costs to be adjusted if you fall below or above that range, then you are right. You could estimate costs on the high end to negotiate a higher fixed fee and then get a higher percentage fee when actual costs are below those estimated. Of course, such a practice may be visible in your ICE submittals so the pattern of overestimating costs could result in a decrement of estimated costs on future contracts when it comes to calculating your fee percentage not to mention making you vulnerable to estimating deficiency assertions.
